Posts Tagged ‘ftc’

EXECUTIVE SUMMARY
The proposed Business Opportunity Rule (“Rule”) pursues the laudable goal of preventing fraud in the work-at-home, pyramid and vending machine marketplaces. But the Rule does not narrowly define and prohibit the specific practices in which the Commission has observed fraud. Nor is it limited to the types of business opportunities that have given rise to consumer complaints and Commission enforcement activity. Instead, the proposed Rule would broadly apply to legitimate and well-established financial services businesses, such as Primerica, as well as the large and growing U.S. direct selling industry—an industry that generates nearly $30 billion in revenues annually, providing income for more than 13.6 million Americans.

This article comes from a site called StopSpam.org. The site’s primary purpose seems to be stopping email scams. However, they included this article which addresses the multi-level marketing (MLM) and pyramid scheme issue.

I think that Mary Kay falls under the “fraudulent multi-level marketing plan” category. Read the 13 points below and form your own opinion. I think a lot of the points hit the mark when it comes to MK.

I thought I’d mention this because it’s interesting to see what businesses the FTC is cracking down on, since it doesn’t seem to do anything about the garden-variety MLMs (which appear legal to many, but that legality could surely be challenged).

This is an interesting little piece from the FTCon multi-level marketing companies (MLMs) that sell health and beauty products. I thought it was worth mentioning because if you look at some of the questions they want you to ask about the company, Mary Kay Inc. doesn’t fare too well.

My comments are in italics…

Lotions and Potions: The Bottom Line About Multilevel Marketing Plans

Lose weight! Firm up! Look better! Live longer!

‘Tis the season for consumers to be confronted with a wide range of health, beauty and fitness products and promotions. Many of these items aren’t available on store shelves and are sold only through distributors.

What Are You Buying?

Many companies that market their products through distributors sell quality items at competitive prices. But some offer goods that are overpriced, have questionable merits or are downright unsafe to use. Mary Kay claims to have the former, but I believe they have the latter. Overpriced and questionable quality.

Before using one of these products, the best prescription may be to check with a health professional.

What Else Is For Sale?

Some distributors sell more than diet and exercise plans, vitamin supplements or wonder creams. Many may sell “opportunities,” too-a chance for you not only to buy, but also to market, the products. In addition to describing the benefits of their product or program, these distributors may encourage you to become a distributor. Ding! Ding! Ding! The Mary Kay “opportunity” is the primary item being sold! Your director will tell you to “share” it with everyone!

If you sign up as a distributor, you may be promised commissions or other rewards-for both your sales of the plan’s goods or services and those of other people you recruit to become distributors. These plans, often called “multilevel marketing plans,” sometimes promise commissions or rewards that never materialize. What’s worse, consumers are often urged to spend or “invest” money in order to make it. Yep. Become a recruit. Immediately buy an inventory package. Then start recruiting more recruits.

Why is pyramiding dangerous? Because plans that pay commissions for recruiting new distributors inevitably collapse when no new distributors can be recruited. And when a plan collapses, most people-except perhaps those at the very top of the pyramid-end up empty-handed. But Mary Kay doesn’t pay just for the recruits!!!! And technically, they don’t. They pay for the wholesale orders placed by the recruit, which is why she should immediately be strong-armed into purchasing some products!

What’s the company’s track record? Good public image, but only because the public never had access to the truth before. What products does it sell? Mediocre skin care and cosmetics. How does it back up claims it makes about its product? With statements about being number one, which they will never support with actual numbers. All that is secret. Is the product competitively priced? No, overpriced for the quality. Is it likely to appeal to a large customer base? Theoretically, but everyone has gotten so turned off by the smarmy tactics.

What up-front investment do you have to make to join the plan? That depends. Which inventory package are you planning on being suckered into? Are you committed to making a minimum level of sales each month? In theory there are no quotas. In reality, there is a quota if you want to continue to receive your wholesale discount. If you want to “move up”, there are minimums for that as well.

Will you be required to recruit new distributors to be successful in the plan? Yes. It is next to impossible to make a real living just selling the products, so youmust recruit if you want to make this a career. Use caution if a distributor tells you that for the price of a “start-up kit” of inventory and sales literature – and sometimes a commitment to sell a specific amount of the product or service each month – you’ll be on the road to riches. Common Mary Kay modus operandi. Show the large commission checks. Parade around diamonds and cars. Pictures of mansions. No matter how good a product and how solid a multilevel marketing plan may be, expect to invest sweat equity as well as dollars for your investment to pay off. Wait! I thought Mary Kay offers a full-time executive income with part time hours???

Your Responsibilities

If you decide to become a distributor, remember that you’re legally responsible for the claims you make about the company, its product and the business opportunities it offers. That applies even if you’re simply repeating claims you read in a company brochure or advertising flyer.

When you promote the qualities of a product or service, you’re obligated to present those claims truthfully and to ensure there’s enough solid evidence to back them up. But how can you ensure there’s evidence, when Mary Kay never actually shows the evidence? The Federal Trade Commission advises you to verify the research behind any claims about a product’s performance before repeating those claims to a potential customer.

Likewise, if you decide to solicit new distributors, be aware that you’re responsible for any claims you make about a distributor’s earnings potential. Oh boy. Be sure to represent the opportunity honestly and to avoid making unrealistic promises. If those promises fall through, remember that you could be held liable. Could and should. I would love to see women go after these dishonest recruiters.